Here are my financial thoughts and questions from your post.
[I wasn’t sure how to format this to make it easy to comment on, I’m open to changing it]
1. If I was only trying to optimize earnings for myself (regardless of EA), would you still recommend this? [not sure I understood this part]
Do you think that:
Optimizing earnings for myself = work at big tech
Optimizing earnings for EA = work at startup
?
If so, then do I understand correctly that the value of working for a startup is:
1.1. Diversifying the EA portfolio, and
1.2. The value of money is not logarithmic for EA as a whole
?
If so, 1.1. seems like a small consideration to me, given the importance of this life decision for the individual, and 1.2. seems like it’s maybe false, given EA currently has a ton of money. But anyway, I’d put this explicitly and let each person decide for themselves. (or maybe I didn’t understand correctly? This is my biggest uncertainty)
If this doesn’t exist somewhere else, perhaps it can be started as a for-profit, I don’t think it necessarily needs to be an EA org. (It can donate profits)
3. EAs picking stocks better than VCs
A main failure mode is, I think, developers who THINK they can pick good startups, but they’re actually just hearing the same things that all the founders say. “We have the best people”, “The market is billions of trillions”, and so on. I’ve been there myself.
I think it’s important to put some clear disclaimer here that most developers won’t manage to beat VCs (in case they think of trying).
4. Opening an EA VC (because we have smart people)
My default answer would be “if it’s possible, why doesn’t it exist?”, but my actual answer is “if some people think they can do it—I think that would be amazing”.
btw it sounds like a dream job to me
5. Liquidation preference and other fishy terms
The real world problem here is that employees won’t know about these fishy terms. Do you live in a place where if the founders sign an agreement giving the investors a 10x liquidation preference, the employees will surely hear about it? I think it’s not the situation in Israel [but this is not my expertise]
6. Meta Options are worth an extra 16 percentage points
First of all, this is really interesting, I have been struggling to build some model around it and I can’t wait to see what was proposed.
6.1. My push back:
At least here, startup workers (and especially founders!!) work a lot more than big-tech workers. I hear people saying “it’s hard so some people won’t want it”, but I don’t think I saw anyone put a number on that “hard” figure.
Do you think it’s reasonable to say that a startup employee works 20% more than a big-tech employee? And founders—way more. (I wonder if a better metric would be “count how much free time they still have” to express that if founders work 13 hours per day instead of 9, they might be working “double” in some sense)
6.1.1. Your push back (?)
I imagine you’d reply and say “those estimations for how much time people spend working at different companies varies a lot between companies, way more than it does between startups-as-a-whole and big-companies-as-a-whole”.
I’d agree.
My point is “there might be even bigger considerations, like how much time you spend at work, which weren’t counted”, and I’m saying all this because I was surprised to see “16 percentage points” as the value that is so big that it seems to tip the scale.
Don’t get me wrong—it is significant, and I’m especially happy to have it modeled explicitly. Maybe I could have done a better job setting up my titles here, sorry
7. Who are the top VCs?
If I understood correctly from you: “who is the top VC” changes over time, and the parameter that has predictive power is “who was the top VC last year”. I’d find it useful to have an updating list of top VCs. Beating the market is always fun!
(Or is Y Combinator always on top?)
8. Transferring the risk / helping EAs who’s startup failed
If the global EA org is more risk tolerant than individual EAs (who need money to live), and also startups are high-expected-return but also high-risk, then maybe we can use existing financial tools to transfer this risk:
We could have the EA org pay money to the employee, and get the employee’s options in return (early on, way before an IPO/exit). [Would this be legal? Why doesn’t it already happen?]
This will also allow the EA org to run the complicated calculation of “which startup options to buy”. Perhaps you could be part of this org, and use calculations such as you did here to find the most promising startups, and use EA employees to get access to their options. I think there’s value in having some centralized org with expertise and skin in the game run this calculation.
9. “Most people overvalue startups and underestimate risk”
This is absolutely my impression, I just wanted to say how much I agree.
I don’t think we can learn much about the “free market” value of startup options by observing that individual developers want these options very much.
I don’t know if this seems obviously true to you: You do sometimes compare how much EAs would value startup options compared to other people. I agree the comparison holds, but I don’t think “the other people” are a reasonable baseline. Let me know if we seem to disagree here, I could also elaborate
What does “optimizing” mean in this context? If I understand Michael’s model correctly, from a monetary perspective, if you’re trying to make as much expected money as possible, you should on average work at a top startup. (This is outside the scope of his model, but) if your utility function is fairly risk sensitive, you should on average work at bigtech. From a career capital perspective, it again depends on a lot of details (as I’m sure you know! :)).
If so, then do I understand correctly that the value of working for a startup is:
1.1. Diversifying the EA portfolio, and
1.2. The value of money is not logarithmic for EA as a whole
?
If so, 1.1. seems like a small consideration to me, given the importance of this life decision for the individual, and 1.2. seems like it’s maybe false, given EA currently has a ton of money
I think the diversification aspect was a relatively small fraction of the gains here (though Michael can feel free to disagree with me). I’m not sure what you mean by “The value of money is not logarithmic for EA as a whole” because there might be too many double negatives, but I think Michael is in fact assuming a logarithmic utility function of money for EA. (if it was linear, reducing correlation by diversifying the porfolio wouldn’t be useful). However, the value of money to EA of your donations is close to linear, for the simple reason that EA already has a lot of money and we assume utility functions are approximately differentiable (i.e. locally linear).
(It’s possible this is what you’re saying and we’re just aggressively agreeing!)
Here are my financial thoughts and questions from your post.
[I wasn’t sure how to format this to make it easy to comment on, I’m open to changing it]
1. If I was only trying to optimize earnings for myself (regardless of EA), would you still recommend this? [not sure I understood this part]
Do you think that:
Optimizing earnings for myself = work at big tech
Optimizing earnings for EA = work at startup
?
If so, then do I understand correctly that the value of working for a startup is:
1.1. Diversifying the EA portfolio, and
1.2. The value of money is not logarithmic for EA as a whole
?
If so, 1.1. seems like a small consideration to me, given the importance of this life decision for the individual, and 1.2. seems like it’s maybe false, given EA currently has a ton of money. But anyway, I’d put this explicitly and let each person decide for themselves. (or maybe I didn’t understand correctly? This is my biggest uncertainty)
2. Funding options exercising—this exists
There is a company that does this in Israel.
If this doesn’t exist somewhere else, perhaps it can be started as a for-profit, I don’t think it necessarily needs to be an EA org. (It can donate profits)
3. EAs picking stocks better than VCs
A main failure mode is, I think, developers who THINK they can pick good startups, but they’re actually just hearing the same things that all the founders say. “We have the best people”, “The market is billions of trillions”, and so on. I’ve been there myself.
I think it’s important to put some clear disclaimer here that most developers won’t manage to beat VCs (in case they think of trying).
4. Opening an EA VC (because we have smart people)
My default answer would be “if it’s possible, why doesn’t it exist?”, but my actual answer is “if some people think they can do it—I think that would be amazing”.
btw it sounds like a dream job to me
5. Liquidation preference and other fishy terms
The real world problem here is that employees won’t know about these fishy terms. Do you live in a place where if the founders sign an agreement giving the investors a 10x liquidation preference, the employees will surely hear about it? I think it’s not the situation in Israel [but this is not my expertise]
6. Meta Options are worth an extra 16 percentage points
First of all, this is really interesting, I have been struggling to build some model around it and I can’t wait to see what was proposed.
6.1. My push back:
At least here, startup workers (and especially founders!!) work a lot more than big-tech workers. I hear people saying “it’s hard so some people won’t want it”, but I don’t think I saw anyone put a number on that “hard” figure.
Do you think it’s reasonable to say that a startup employee works 20% more than a big-tech employee? And founders—way more. (I wonder if a better metric would be “count how much free time they still have” to express that if founders work 13 hours per day instead of 9, they might be working “double” in some sense)
6.1.1. Your push back (?)
I imagine you’d reply and say “those estimations for how much time people spend working at different companies varies a lot between companies, way more than it does between startups-as-a-whole and big-companies-as-a-whole”.
I’d agree.
My point is “there might be even bigger considerations, like how much time you spend at work, which weren’t counted”, and I’m saying all this because I was surprised to see “16 percentage points” as the value that is so big that it seems to tip the scale.
Don’t get me wrong—it is significant, and I’m especially happy to have it modeled explicitly. Maybe I could have done a better job setting up my titles here, sorry
7. Who are the top VCs?
If I understood correctly from you: “who is the top VC” changes over time, and the parameter that has predictive power is “who was the top VC last year”. I’d find it useful to have an updating list of top VCs. Beating the market is always fun!
(Or is Y Combinator always on top?)
8. Transferring the risk / helping EAs who’s startup failed
If the global EA org is more risk tolerant than individual EAs (who need money to live), and also startups are high-expected-return but also high-risk, then maybe we can use existing financial tools to transfer this risk:
We could have the EA org pay money to the employee, and get the employee’s options in return (early on, way before an IPO/exit). [Would this be legal? Why doesn’t it already happen?]
This will also allow the EA org to run the complicated calculation of “which startup options to buy”. Perhaps you could be part of this org, and use calculations such as you did here to find the most promising startups, and use EA employees to get access to their options. I think there’s value in having some centralized org with expertise and skin in the game run this calculation.
9. “Most people overvalue startups and underestimate risk”
This is absolutely my impression, I just wanted to say how much I agree.
I don’t think we can learn much about the “free market” value of startup options by observing that individual developers want these options very much.
I don’t know if this seems obviously true to you: You do sometimes compare how much EAs would value startup options compared to other people. I agree the comparison holds, but I don’t think “the other people” are a reasonable baseline. Let me know if we seem to disagree here, I could also elaborate
What does “optimizing” mean in this context? If I understand Michael’s model correctly, from a monetary perspective, if you’re trying to make as much expected money as possible, you should on average work at a top startup. (This is outside the scope of his model, but) if your utility function is fairly risk sensitive, you should on average work at bigtech. From a career capital perspective, it again depends on a lot of details (as I’m sure you know! :)).
I think the diversification aspect was a relatively small fraction of the gains here (though Michael can feel free to disagree with me). I’m not sure what you mean by “The value of money is not logarithmic for EA as a whole” because there might be too many double negatives, but I think Michael is in fact assuming a logarithmic utility function of money for EA. (if it was linear, reducing correlation by diversifying the porfolio wouldn’t be useful). However, the value of money to EA of your donations is close to linear, for the simple reason that EA already has a lot of money and we assume utility functions are approximately differentiable (i.e. locally linear).
(It’s possible this is what you’re saying and we’re just aggressively agreeing!)